Chapter 34, Problem 1FT

To determine

Which are considered as money.

Answer to Problem 1FT

Choices 'a' and 'c'.

Explanation of Solution

The exchange of goods and services takes place in the economy with a medium of exchange. The widely accepted means of transaction is money. There are many items, which are considered as money such as the paper currencies and metallic coins and so on.

Option (a):

Cash is a very widely accepted and used medium of exchange. It has the highest liquidity. It helps to carry on the transaction easily in the market. Thus, the society accepts the cash for goods and services. Therefore, it comes under the definition of a widely accepted means of payment. Hence, it is considered as money.

Option (c):

The checking account balance is the balance that the people save in the bank accounts. They are also highly liquid and they can be accessed with the checks from the banks. Thus, people are ready to accept the checking account balance as a medium of payment. Hence , it is also considered as money.

Option (b):

The records are good to hear. Some are ready to accept them as payments for the goods and services that they provide. However, majority of the society will not accept them as payment. It is due to the very lower liquidity of the records. Thus, they are not widely accepted means of payment and so they are not considered as money.

Option (d):

The auto-detailing works are very hard to be converted into accepted means of payment. Therefore, it has very lower liquidity and is widely accepted by people other than the auto-enthusiastic people. Hence, it is not considered as money.

Option (e):

The continental dollars are widely accepted means of payment after the period of the war-era. However, they have lost its prestige and now they are not used as a medium of exchange. Therefore, although they were once accepted as money, now they are not.

Economics Concept Introduction

Concept introduction:

Money: Money is a widely used medium of exchange.